Smurfit Kappa investors anticipate higher US offer
Smurfit Kappa shareholders are braced for a fresh offer from International Paper after weeks of deadlock between the two parties.
Investors in Europe's largest box maker remain convinced its larger US suitor will stump up the extra cash to take the bid closer to the key €40-a-share valuation, widely seen as a catalyst for engagement.
The confidence is rooted largely in the extensive groundwork undertaken by International Paper, which has so far set out its case to both sets of shareholders, as well as the credit ratings agencies.
Source said the agencies have published brief notes arguing in favour of the Memphis-based group's ability to reduce its borrowings down to three times earnings in the years after any deal.
As one investor pointed out, it "beggars belief" that International Paper would walk now, given the amount of time and capital expended. He claimed the company had done everything it needed to do in terms of explaining the deal to the market.
"Only the price falls short," he said. According to this sizeable investor in Smurfit, International Paper possesses the firepower to improve the bid.
His views were echoed by two other shareholders, who maintain the Dublin-based packaging firm will come under pressure if it rebuffs a near €40-a-share offer.
While the event-driven funds are the keenest on a merger, longer-term stakeholders have also expressed their desire for an exit at this valuation. This is partly because of fears the sector, which is notoriously cyclical, is due for a correction after 2019 as new players pump in additional production capacity.
One stakeholder argued valuations in the industry had hit a peak.
Yet despite the undimmed optimism of some Smurfit shareholders, International Paper has repeatedly stressed "it does not see a way forward" following the rejection of its last cash-and-shares offer, which was pitched at €37.54 a share.
The improvement in the group's share price since then has lifted the offer to closer to €38.50.
There is little sign of a softening either from Smurfit's board, even as some investors start to pressure the group to enter negotiations with its US rival.
One investor warned the Irish firm to avoid "playing too many games".
"We are at the top of the cycle in this space so we want a deal but at the right price. We don't want the board to play too many games and this all to fall apart," he said.